Benchmark oil for June delivery was down 67 cents to $103.88 a barrel at late afternoon Singapore time in electronic trading on the New York Mercantile Exchange. The contract rose 43 cents to settle at $104.55 in New York on Thursday.

Brent crude for June delivery was down 49 cents at $119.43 per barrel in London.

At three notches above junk status, Spain's credit rating is still investment grade. However, the lower rating could increase the nation's borrowing costs because investors will likely demand higher interest rates to compensate for the greater risk implied by the lower rating.

Spain's central bank confirmed this week that in the first quarter the European nation fell into a recession for the second time in three years amid a 23 percent unemployment rate.

"It's really the return of concerns about the European economy and the debt issue that's causing some selling in oil this morning," said Victor Shum, an analyst at energy consultant Purvin & Gertz in Singapore.

Oil prices have hovered between $102 and $104 most of this month as traders weigh the impact of Europe's debt crisis and the conflict over Iran's nuclear program against signs of recovery in the U.S. economy.

Some analysts expect U.S. and European economic sanctions against Iran will tighten in the coming months, making it more difficult for the OPEC member to export oil.

Crude has jumped from $75 in October amid concern a military strike by Israel or the U.S. against Iran's nuclear facilities will disrupt global crude supplies. Six global powers met with Iran earlier this month and another round of negotiations is scheduled for next month.

"As we approach summertime the rhetoric over Iran may heat up again and that will likely cause pricing to strengthen," Shum said.

Investors will be closely watching first quarter U.S. gross domestic product results scheduled to be released later Friday. On Thursday, the Federal Reserve boosted its outlook for this year's economic growth and employment.

In other energy trading, heating oil was down 1.1 cents at $3.19 per gallon and gasoline futures fell 0.8 cent at $3.13 per gallon. Natural gas rose 1.6 cents at $2.14 per 1,000 cubic feet.